Strategic Management

THE NATURE OF STRATEGIC MANAGEMENT

Defining Strategic Management

Strategic management is the art and science of formulating, implementing, and evaluating

cross-functional decisions that enable an organization to achieve its objectives. As this definition implies,

strategic management focuses on integrating management, marketing, finance and accounting,

production and operations, research and development (R&D), and information systems to achieve

organizational success.

Stages of Strategic Management

 Strategy formulation includes developing a vision and a mission, identifying an

organization’s external opportunities and threats, determining internal strengths and
weaknesses, establishing long-term objectives, generating alternative strategies, and
choosing particular strategies to pursue. Strategy-formulation issues include deciding
what new businesses to enter, what businesses to abandon, whether to expand
operations or diversify, whether to enter international markets, whether to merge or form
a joint venture, and how to avoid a hostile takeover.
 Strategy implementation requires a firm to establish annual objectives, devise policies,
motivate employees, and allocate resources so that formulated strategies can be
executed. Strategy implementation includes developing a strategy-supportive culture,
creating an effective organizational structure, redirecting marketing efforts, preparing
budgets, developing and using information systems, and linking employee compensation
to organizational performance.
 Strategy evaluation is the final stage in strategic management. Managers desperately
need to know when particular strategies are not working well; strategy evaluation is the
primary means for obtaining this information. All strategies are subject to future
modification because external and internal factors constantly change.

Three fundamental strategy-evaluation activities are:

(1) Reviewing external and internal factors that are the bases for current strategies,
(2) Measuring performance, and
(3) Taking corrective actions.

Key Terms in Strategic Management

 Competitive Advantage
This term can be defined as any activity a firm does especially well compared to
activities done by rival firms, or any resource a firm possesses that rival firms desire. Getting and
keeping competitive advantage is essential for long-term success in an organization.

 Strategists
Strategists are the individuals most responsible for the success or failure of an
organization. Strategists help an organization gather, analyze, and organize information. They
track industry and competitive trends, develop forecasting models and scenario analyses,
evaluate corporate and divisional performance, spot emerging market opportunities, identify
business threats, and develop creative action plans.
 Vision and Mission Statements

Developing a vision statement is often considered the first step in strategic planning,
preceding even development of a mission statement. Many organizations today develop a vision
statement that answers the question “What do we want to become”’. Many vision statements

are a single sentence. For example, the vision statement of Stokes Eye Clinic in Florence, South
Carolina, is “Our vision is to take care of your vision”.
Mission statements are enduring statements of purpose that distinguish one business
from other similar firms. A mission statement identifies the scope of a firm’s operations in
product and market terms. It addresses the basic question that faces all strategists: “What is our
business?” A clear mission statement describes the values and priorities of an organization.

 External Opportunities and Threats

External opportunities and external threats refer to economic, social, cultural,
demographic, environmental, political, legal, governmental, technological, and competitive
trends and events that could significantly benefit or harm an organization in the future.
Opportunities and threats are largely beyond the control of a single organization—thus the
word external.
 Internal Strengths and Weaknesses
Internal strengths and internal weaknesses are an organization’s controllable activities
that are performed especially well or poorly. They arise in the management, marketing, finance/
accounting, production/operations, research and development, and management information
systems (MIS) activities of a business. Identifying and evaluating organizational strengths and
weaknesses in the functional areas of a business is an essential strategic-management activity.
• Long-Term Objectives
Objectives can be defined as specific results that an organization seeks to achieve in
pursuing its basic mission. Long-term means more than one year. Objectives are essential for
organizational success because they provide direction; aid in evaluation; create synergy; reveal
priorities; focus coordination; and provide a basis for effective planning, organizing, motivating,
and controlling activities. Objectives should be challenging, measurable, consistent, reasonable,
and clear. In a multidimensional firm, objectives are needed both for the overall company and
each division.
• Strategies
Strategies are the means by which long-term objectives will be achieved. Business strategies may
include geographic expansion, diversification, acquisition, product development, market
penetration, retrenchment, divestiture, liquidation, and joint ventures. Strategies are potential
actions that require top-management decisions and large amount of the firm’s
resources. They affect an organization’s long-term prosperity, typically for at least five years,
and thus are future-oriented.
• Annual Objectives

Annual objectives are short-term milestones that organizations must achieve to reach
long-term objectives. Like long-term objectives, annual objectives should be measurable,
quantitative, challenging, realistic, consistent, and prioritized. They must also be established at
the corporate, divisional, and functional levels in a large organization. A set of annual objectives
is needed for each long-term objective. These objectives are especially important in strategy
implementation, whereas long-term objectives are particularly important in strategy
formulation. Annual objectives provide the basis for allocating resources.

• Policies

Policies are the means by which annual objectives will be achieved. Policies include
guidelines, rules, and procedures established to support efforts to achieve stated objectives.
Policies are guides to decision making and address repetitive or recurring situations. They may
be established at the corporate level and apply to an entire organization, at the divisional level
and apply to a single division, or they may be established at the functional level and apply to
particular operational activities or departments. Policies allow consistency and coordination
within and between organizational departments.